Latvijas Gaze

Investor Presentation • Aug 18, 2016

JSC "LATVIJAS GĀZE" WEBINAR

Zane Kotāne Member of the Board August 17, 2016

DISCLAIMER

This presentation has been prepared by the JSC "Latvijas Gāze" (the Company) for informational purposes. Reproduction of the information used in the presentation is authorised provided the source is acknowledged.

The presentation is not an offer, an encouragement or an invitation to purchase the Company's securities. All persons who consider purchasing the Company's securities should get acquainted with the available information on their own before making a decision.

The information included in this presentation has not been independently verified. The appended consolidated financial statements have not been audited, and no auditor has given an opinion that these unaudited financial statements give a true and fair view of the Company's financial situation and operational results in all key aspects in the period for which the statements have been provided in compliance with the generally adopted accounting principles.

Neither the Company nor its officials shall be held responsible for any losses that may be incurred through use of this presentation or the content thereof.

LG operational results in the 1st half of 2016

Reorganisation

Operational results in the 1st half of 2016

KEY INDICATORS

Key financial indicators (thous. EUR)	2016 6M	2015 6M
Net turnover	211 637	235 418
EBITDA	49 938	48 278
EBITDA, %	23.6	20.5
Net profit	26 824	26 684
Net profitability, %	12.7	11.3
Profit per share, EUR	0.67	0.67

Key operational indicators	2016 6M	2015 6M
Natural gas sales in Latvia, mio m3	728	629
Number of customers, thous.	444	443
Number of employees, average	1 271	1 262
Length of distribution pipelines, km	5 047	4 977
Length of transmission pipelines, km	1 193	1 242

• LG is the only vertically integrated natural gas supplier in the Baltics
• Four operating segments
  • Transmission; Storage; Distribution; Trade
• Prominent trader in the region
  • 31% of Baltic market in 2015
• Manages the only natural gas storage facility in the Baltics
  • Inčukalns Underground Natural Gas Storage Facility 2.3 billion m³ of active gas, total capacity 4.4 billion m³ .

JSC "LATVIJAS GĀZE" SHAREHOLDERS

			On the stock exchange since 1999
---	--	--	----------------------------------	--	--

• 2.8% of shares in active trading
  • 10 million EUR capitalisation
• 6th most valuable Latvian company in 2015
  • TOP 101 by Nasdaq Riga and Prudentia
• Included in three trading indexes
  • OMX Baltic; OMX Riga; OMX Baltic Energy
• Annual dividend payment since 1997

Dividend amount

	2014	2015	2016 H1
NUMBER OF TRANSACTIONS	1 290	1 283	792
NUMBER OF SHARES TRADED	118 685	136 627	70 832
% OF TOTAL NUMBER OF SHARES*	0.47%	0.54%	0.28%

* shares in public issue

REGULATION

• Tariffs in force since 2008
• Main parameters
  • Final tariff 8 consumption tiers
  • Capital return rate (WACC) set to 8%
  • Consumption in Latvia 1.7 billion m³
• Regulated cross-border service tariffs
• 99.8% of business subject to regulation

JSC "LATVIJAS GĀZE" REVENUES

EUR/thous. m3

Net turnover (million EUR)

503 445 212 2014 2015 2016 H1

Gas consumption in the Baltic States, 2010-2015

Estonia Lithuania Latvia

0 20 40 60 80 100 150 200 250 300 EUR/barelsBRENT oil and natural gas sales price Sales price Brent SPOT

• Revenues fall due to low prices in the global oil markets Latvian consumers are applied a regulated trading price
• The Baltic natural gas market has declined by 23% in the last 5 years

jan.2015 mar.2015 may.2015 jul.2015 sep.2015 nov.2015 jan.2016 mar.2016 may.2016

Sales volume in H1 2016 was 16% higher than in H1 2015

CAPITAL INVESTMENT PROGRAMME

0 10 20 30 40 2014 2015 2016 H1 thous. EUR Gas transmission Gas storage Gas distribution Gas trade

Investments

Assets million EUR

• Investments are focused on the improvement of operational safety
• Investment areas (2016 H1):
  • IUGS 55%
  • Gas transmission pipelines 26%
  • Gas distribution pipelines 18%
• Major projects:
  • Project "Capital repair of 27 wells" (2013-2016)
  • Project "Reconstruction of gas collection point No.2" (2014- 2018)
  • Project "Renovation of transmission system pipelines and restoration of external anti-corrosion coating"
• Long-term assets account for 71% of the total assets
• Assets are revalued on a regular basis
  • The year 2016 saw revaluation of Transmission and Storage assets

CAPITAL STRUCTURE

	2014	2015	2016 H1
SHARE CAPITAL	55 860	55 860	55 860
SHARE PREMIUM	20 376	20 376	20 376
RESERVES	491 944	478 059	485 570
RETAINED EARNINGS	42 002	57 108	84 037

JSC "Latvijas Gāze" maintains a very conservative capital structure (D/E = 0)

• Capital composition is relatively consistent
  • An average of 78% of the company's capital is reserves

SEGMENTS - 2016 H1

• Trading is the largest segment in terms of turnover
• Distribution is the largest in terms of assets
• Funds are managed in a centralised way without splitting by operating segments

11

TRANSMISSION

• Regulated operating segment
  • Till April 2017 tariff in thous.m³ per 100 km
  • After April 2017 entry/exit capacity sales revenue
• The natural gas volume transmitted for Latvia is relatively steady, historically around 40% of the total transmission volume
• Transit flows the most important is the volume transmitted for Russia
• Major operational risks:
  • Regulatory regime
  • Transit flows and winter supplies from IUGS to Russia
  • Development of regional projects (GIPL; Balticonnector)

GAS TRANSMITTED IN LATVIA

GAS TRANSMISSION EUR'000	2014	2015	2016 H1
Net turnover	26 419	26 012	13 458
EBITDA	17 152	15 618	9 583
Segment assets Purchase of fixed and intangible	199 995	193 643	181 804
assets	14 858	11 691	2 706
Depreciation and amortisation	13 952	14 163	7 779
RAB*	175 641	179 571	179 571

NATURAL GAS WITHDRAWAL FROM IUGS

NATURAL GAS INJECTION INTO IUGS

• IUGS a seasonal natural gas storage facility

  • Active gas 2.3 billion m³

• Total capacity 4.4 billion m³

• The volume injected for Latvia (850-900 million m³ ) is less than 40% of the total active gas volume
• Major operational risks:
  • Regulatory regime (in Latvia the storage segment remains regulated)
• *RAB Regulated asset base Natural gas storage for foreign countries

DISTRIBUTION

- 300 600 900 1 200 1 500 2014 2015 2016 H1 Major customers Commercial customers Households thous. m3

NATURAL GAS SALES VOLUMES

GAS DISTRIBUTION EUR'000	2014	2015	2016 H1
Net turnover	49 481	48 495	27 648
EBITDA	23 724	23 961	17 470
Segment assets	254 124	261 704	238 445
Purchase of fixed and intangible assets	6 499	6 377	1 875
Depreciation and amortisation	11 633	11 823	5 897
RAB*	227 019	225 462	225 462

*RAB – Regulated asset base

• The distribution segment is and remains regulated
• Consumers in Latvia are split into 8 tiers
• The segment's profitability depends on the spread of consumption across consumer tiers

• Major operational risks:

• Natural gas consumption metering and distribution losses

• Regulatory risks
• Introduction of requirements on natural gas market opening

14

TRADE

GAS TRADING EUR'000	2014	2015	2016 H1
Net turnover	395 387	342 394	154 253
EBITDA	10 027	12 928	11 152
Segment assets	150 814	145 153	23 550
Purchase of fixed and intangible assets	641	733	117

• The largest segment in terms of net turnover (73 %)
• Trading only within Latvia
• Till April 3, 2017 100% regulated market
• After April 3, 2017 opening of the Latvian market
  • Commercial customers a freely selected natural gas supplier
  • Households may receive natural gas for a regulated price during the transitional period till April 3, 2017
• Major operational risks
  • Market share in LV after the market opening
  • Activity in other Baltic markets
  • Risk of customer concentration

SUMMARY OF FINANCIAL INDICATORS

The company holds a stable position in the Baltic natural gas market

• Capability and capacity to serve a large number of customers over 440 thousand
• A consistent policy of dividend payment
• EBITDA are trending positively
• The split of segments results in two large companies with steady financial indicators
• Transmission and Storage (Conexus Baltic Grid) will remain as regulated operating segments
• Shares of the new company are available free of charge

JSC «LATVIJAS GĀZE» Reorganisation

JSC "LATVIJAS GĀZE" REORGANISATION

Reasons of the company's unbundling:

• European Union requirements
• Expiration of Privatisation Agreements
• Energy Law amendments of March 2016
• Unbundling requirements:
  • To separate transmission and storage from trade
  • To set up a sister company
  • To complete legal separation by April 3, 2017

• During the Shareholders' meeting held in March, all major shareholders voiced their position in support of initiating spin-off
• The Shareholders' meeting is due to resolve on spin-off on September 2
• The foundation meeting of Conexus Baltic Grid to approve its articles of association, council etc. is due to be held in late 2016

JSC "LATVIJAS GĀZE" SPIN-OFF

Conexus Baltic Grid

Shares

• Will continue to be quoted on the stock exchange
• The number of shares does not change
• Value depends on the public market
• All current shareholders may keep their shares

Shares

• The shareholders will decide on whether it will be a public or closed company
• The draft articles of association will be published at least one month before the foundation meeting
• 39,900,000, face value 1 EUR
• 20 The Energy Law amendments introduce requirements on independence between the two companies, which means that part of shareholders will most probably dispose their shares

SHAREHOLDER'S OPTIONS

KEY DOCUMENTS

Spin-off Decision

• Reorganisation Prospectus
• Asset Distribution Deed
• Spin-off Balance Sheet
• Auditors' Opinions:
  • Verification of draft Spin-off Decision
  • Sufficiency of the assets to be transferred for establishment of fixed capital of Conexus

Submission of applications for shares

• Electronically signed document to: info@akcionari.lg.lv
• Letter to: Vagonu iela 20, Riga, LV-1009
• In presence: Customer Service Centre at Vagonu iela 20, Riga, or regional units in other cities of Latvia

Contact information

Vinsents Makaris IR@lg.lv +(371) 67 369 144

Section Company reorganisation on www.lg.lv:

• Application forms
• Reorganisation Prospectus
• Shareholders' meeting materials and news

THANK YOU! Questions: IR@lg.lv